I have just taken on a new bookkeeping client. They are a new business providing 100% grant funded vocational training courses to help get people back into work. I am about to start their bookkeeping and get their books up to date, however, their accountant has registered them for VAT based on turnover.
It is my opinion that their supplies are exempt from VAT as they are grant funded by one of the accepted government bodies and are education related. As such they do not need to charge VAT on sales and nor can they reclaim VAT on their purchases as 100% of their income is exempt.
It is my opinion that they should never have been registered and that they should deregister as soon as possible.
My question is two fold.
Firstly, do people agree with my opinions?
Secondly, how would people post transactions onto accounting software? Would you set them up as not VAT registered so that everything posts as a T9. Ask client to do a nil VAT return and get deregistered. Unfortunately they have to do a VAT return and I believe that the exempt supplies and purchases must be entered in boxes 6 and 7 even if there are no supplies or purchases generating figures in boxes 1 to 5. Would you therefore post all sales and purchases until deregistration occurs using a T2 code so that this is achieved?
Obviously I am unable to give my client advice due to ACCA regulation 8 (do I get a gold star Shaun) so am in a tricky situation.
Exemption for VAT may be appropriate. Check this guidance: www.hmrc.gov.uk/manuals/vatedumanual/VATEDU57000.htm.
You will need to be quite specific to qualify for exemption, and not just be in receipt of government money.
If exemption does apply, and VAT registration is not appropriate, then you can notify HMRC and have them cancel the existing registration from the original date of registration.
